Hedge Funds Are Selling Summit Materials Inc (SUM)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Summit Materials Inc (NYSE:SUM) and determine whether the smart money was really smart about this stock.

Summit Materials Inc (NYSE:SUM) investors should be aware of a decrease in hedge fund sentiment in recent months. Summit Materials Inc (NYSE:SUM) was in 23 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. Our calculations also showed that SUM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action surrounding Summit Materials Inc (NYSE:SUM).

How have hedgies been trading Summit Materials Inc (NYSE:SUM)?

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the first quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in SUM a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, GMT Capital held the most valuable stake in Summit Materials Inc (NYSE:SUM), which was worth $63 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $57.3 million worth of shares. Wallace R. Weitz & Co., Intrinsic Edge Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Summit Materials Inc (NYSE:SUM), around 3.9% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, designating 3.54 percent of its 13F equity portfolio to SUM.

Seeing as Summit Materials Inc (NYSE:SUM) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that decided to sell off their entire stakes by the end of the second quarter. Interestingly, Gregg Moskowitz’s Interval Partners cut the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $17.1 million in stock, and Alexander Charles McAree’s Red Cedar Management was right behind this move, as the fund dumped about $3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Summit Materials Inc (NYSE:SUM) but similarly valued. We will take a look at Micro Focus Intl PLC (NYSE:MFGP), Beacon Roofing Supply, Inc. (NASDAQ:BECN), Sandstorm Gold Ltd. (NYSE:SAND), Hancock Whitney Corporation (NASDAQ:HWC), Monro Inc (NASDAQ:MNRO), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), and Washington Real Estate Investment Trust (NYSE:WRE). This group of stocks’ market valuations resemble SUM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFGP 13 20139 4
BECN 16 255979 -4
SAND 16 173163 3
HWC 23 77354 3
MNRO 11 36766 -3
AUPH 29 491503 1
WRE 8 74114 3
Average 16.6 161288 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $221 million in SUM’s case. Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 8 bullish hedge fund positions. Summit Materials Inc (NYSE:SUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SUM is 56.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately SUM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SUM were disappointed as the stock returned 2.9% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.